Chan v Acres - [2015] NSWSC 1885

Supreme Court

New South Wales

Summary available

Medium Neutral Citation: Chan v Acres [2015] NSWSC 1885
Hearing dates: 29/9/2015, 30/09/2015, 01/09/2015, 02/10/2015, 06/10/2015, 07/10/2015, 08/10/2015, 12/10/2015, 13/10/2015, 14/10/2015 and 15/10/2015
Date of orders: 11 December 2015
Decision date: 11 December 2015
Jurisdiction: Equity
Before: McDougall J
Decision:
Parties to bring in draft orders to give effect to reasons.

Catchwords:
NEGLIGENCE – building and construction – where plaintiffs purchased a house that had been defectively renovated by the vendor, the first defendant – second defendant no longer a party to proceedings – where vendor had engaged an engineer, the third defendant, to carry out inspections at particular times – where vendor had also engaged the local council, the fourth defendant, to act as Principal Certifying Authority

STATUTE – case against vendor – statutory warranties set out in the Home Building Act 1989 (NSW) – warranties breached

NEGLIGENCE – case against engineer – whether the engineer owed a duty of care at common law to use reasonable care to avert the risk that subsequent purchasers might suffer pure economic loss – relevant authorities – requirement that purchasers must have been vulnerable – analysis of vulnerability to proceed by reference to the salient features of the relationship – assumption of responsibility and known reliance as important factors – inability to protect one’s self from harm as another important factor – where no evidence of assumption of responsibility on the part of the engineer or known reliance on the part of the purchasers – where purchasers were, to some extent, able to protect themselves – no duty of care – further finding that had a duty been owed, breach would be made out, but not causation

NEGLIGENCE – case against council – similar principles to case against engineer – further principles deriving from the statutory role of Principal Certifying Authorities under the Environmental Planning and Assessment Act 1979 (NSW) – assumption of responsibility and known reliance both shown – inability for purchasers to verify quality of construction by any other means – result that the purchasers were relevantly vulnerable to the conduct of the Council – reasonable foreseeability that loss could be suffered – consequence that duty of care was owed – breach of duty proved – causation also proved
DAMAGES – divergence of opinion between expert witnesses – apportionment of responsibility – where vendor had no reason to think the various contractors he engaged were not competent – where his negligence derives from statute rather than through any fault of his own – where culpability of the council, by contrast, was serious – result that council should bear the cost
Legislation Cited: Civil Liability Act 2002 (NSW)
Environmental Planning and Assessment Act 1979 (NSW)
Environmental Planning and Assessment Regulation 2000 (NSW)
Home Building Act 1989 (NSW)
Cases Cited: Astley v Austrust Ltd (1999) 197 CLR 1
Brookfield Multiplex Ltd v Owners – Strata Plan 61288 (2014) 88 ALJR 911
Bryan v Maloney (1995) 182 CLR 609
Caltex Refineries (Qld) Pty Ltd v Stavar (2009) 75 NSWLR 649
Caltex Oil (Australia) Pty Ltd v The Dredge “Willemstad” (1976) 136 CLR 529
Commercial Union Assurance Company of Australia Ltd v Ferrcom Pty Ltd (1991) 22 NSWLR 389
Dansar Pty Ltd v Byron Shire Council (2014) 89 NSWLR 1
Hawkins v Clayton (1988) 164 CLR 539
Moorabool Shire Council v Taitapanui (2006) 14 VR 55
Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd [2015] HCA 37
Owners Corporation Strata Plan 61288 v Brookfield Multiplex Ltd [2012] NSWSC 1219
Owners Corporation Strata Plan 72535 v Brookfield [2012] NSWSC 712
Perre v Apand Pty Ltd (1999) 198 CLR 180
Podrebersek v Australian Iron and Steel Pty Ltd (1985) 59 ALJR 492
The Mutual Life and Citizens’ Assurance Company Limited v Evatt (1968) 122 CLR 556
Western Districts Developments Pty Ltd v Baulkham Hills Shire Council (2009) 75 NSWLR 706
Woolcock Street Investments Pty Ltd v CDG Pty Ltd (2003) 216 CLR 515
Category: Principal judgment
Parties: Rebecca Chan (First Plaintiff)
Warren Cox (Second Plaintiff)
Robert Acres (First Defendant)
Alpha Building Services Pty Ltd (Second Defendant)
Mitchell Howes Civil & Structural Engineers Pty Ltd (Third Defendant)
Ku-ring-gai Council (Fourth Defendant)
Representation:
Counsel:
M Painter SC / M Walsh (Plaintiffs)
R R Acres (First Defendant) (In person)
M R Elliott (Third Defendant)
P J Bambagiotti (Fourth Defendant)
Solicitors:
Snelgroves (Plaintiffs)
R R Acres (First Defendant) (In person)
Gilchrist Connell Legal (Third Defendant)
Mills Oakley (Fourth Defendant)

File Number(s): 2012/48496

Judgment

HIS HONOUR: The plaintiffs (Ms Chan and Mr Cox) own a house situated at Roland Avenue, Wahroonga. They bought it from the first defendant (Mr Acres) and his then wife in March 2010. Mr Acres’ former wife played no part in these proceedings. No one took the point that she should have been, but was not, a party. I shall refer to activities in fact undertaken by Mr Acres and his then wife as though he alone had undertaken them.
Mr Acres, as an owner-builder, carried out significant renovations and extensions to the house in 2008 and 2009. He had obtained a development consent issued by the fourth defendant (the Council) on 22 April 2008, and a construction certificate issued by the Council on 6 May 2008. He engaged the Council as Principal Certifying Authority (PCA) for the purposes of Part 4A of the Environmental Planning and Assessment Act 1979 (NSW) (the EPA Act) and Part 8 of the Environmental Planning and Assessment Regulation 2000 (NSW) (the EPA Regulation).
Mr Acres engaged what he called an architect, but what appears in fact to have been a design or drafting company, called Actron Design Pty Ltd (Actron). Actron is not a party to these proceedings.
On the advice of Actron, Mr Acres retained the third defendant (MHE) to prepare certain structural drawings, and to carry out inspections of the structural work as requested from time to time.
Mr Elliott of Counsel, for MHE, submitted that the retainers were each ad hoc, not all effected by the one contract. I think that this is correct, but in the event, nothing seems to turn on it.
Before the plaintiffs bought the house, they procured a pre-purchase inspection report from the second defendant (Alpha). The claim against Alpha has been settled.
Essentially, the plaintiffs’ case is that, based on the pre-purchase report prepared by Alpha and other matters, they decided to buy the house knowing of some defects (relating principally to water damage to the ceiling and walls in a bedroom located in the extension that Mr Acres had constructed, at the rear, or west, of the house). There were some other problems relating to surface water, drainage and subfloor ventilation, and some cosmetic matters. However, the plaintiffs say, after they moved into the property, they discovered that there were very serious structural and other defects, particularly in the work that Mr Acres had carried out.

The real issues in dispute

The plaintiffs sue:

Mr Acres, for breach of some of the statutory warranties set out in s 18B of the Home Building Act 1989 (NSW) (the HB Act), the benefit of which was extended to them by the “deemed contract” for which s 18C of that Act provides;

MHE, for breach of a common law duty of care said to be owed by it to them in respect of its inspections of elements of the structural works carried out by Mr Acres; and

the Council, for breach of a common law duty of care said to be owed by it to them in its capacity as PCA, in respect of inspections and certifications from time to time carried out and given by a Council building surveyor, and in respect of the Occupation Certificate issued by the Council, again in its capacity as PCA.

The defendants deny liability. Further, each argues that if he or it is liable, the others should be held responsible in whole or in part.
The essential issues are:

did either MHE or the Council owe the plaintiffs any common law duty of care in respect of the work each did under its contract with Mr Acres?

Did Mr Acres breach the statutory warranties, and did MHE or the Council breach any duty of care owed to the plaintiffs?

What work was defective, and what is the cost of rectification?

How should any liability be apportioned between the three active defendants?

Brief description of the building works

Roland Avenue runs generally North-South at the point where the house is located. The house is on the western side of the street. The extensions were constructed at the rear, or western side, of the house. There were however some works carried out to the front, or eastern, side. In addition, there were works carried out in the grounds of the property.
The plaintiffs’ principal complaints relate to the extension at the rear of the house. There are also complaints in respect of a “Dincel” retaining wall on the northern boundary of the property, and in respect of other matters.
To explain the general nature of the works at the rear of the house, I shall adopt the parties’ somewhat confusing terminology: particularly their use of the phrases “lower ground floor” and “ground floor” to designate respectively the lower and upper levels of the extension.
The works were executed on a slab laid on the ground that was supposed to be founded on shale. The approximate dimensions of the slab were 15m x 7m. The new slab was to be tied into the slab under the existing house, with provision for a drainage channel (formed by a set-down in the new slab at the point of intersection) from which water that gathered could be carried away into the stormwater system.
As designed by Actron, the northern and southern walls of the rear extensions were to be built of cavity brick, apparently for the full height of the extensions to roof level. The rooms facing to the west, or rear, of the property were to have windows or glazed doors.
The Actron design provided also for balconies to be constructed at the ground floor level, again facing west. One of those balconies was reduced in area, to comply with a condition of the development approval.
The whole of the rear extensions were to be covered by a metal skillion roof. Mr Acres said that after the works were completed, a tree fell onto the skillion roof, causing substantial damage. That damage was repaired at the expense of an insurer, and by a contractor arranged by the insurer. This aspect of Mr Acres’ evidence was not challenged.
The works as constructed were somewhat different to the Actron design. MHE prepared a structural design which provided for the southern wall of the rear extension to be constructed of blockwork rather than cavity brick work. To the extent that this wall continued around to the west, it was likewise to be constructed in blockwork. MHE’s design provided for a system of vertical bond beams in the blockwork walls, and for a horizontal bond beam to be constructed at the top of the south wall blockwork, for the purpose of taking the loads imposed by the ground floor floor joists and the works above.
In this context, a bond beam is constructed in blockwork by installing steel reinforcing bars into blocks (arranged horizontally or vertically) and then filling those blocks with concrete. MHE’s design provided, among other things, for the vertical bond beams to be “cogged in” to the horizontal bond beam which they supported. That was to be achieved by taking lengths of reinforcement from the top of the vertical bond beams and bending them into the blocks from which the horizontal bond beam would be constructed. The effect would be to tie the horizontal bond beam into the vertical bond beams that support it.
For the first floor, the MHE design specified a wall of single skin brickwork with plasterboard interior walls: a brick veneer construction. The design provided for columns in various locations to support the roof, and specifically for steel columns, called the “C2 columns”, to be located at the western face of the extensions, to support a steel beam running above the large glazed opening at the lower ground floor level.
On 22 April 2008, an engineer (the inspecting engineer) employed by MHE inspected the site “to review the underpinning requirements”. He observed a test hole which disclosed hard shale about 500mm below natural ground level, and gave an instruction that “the underpinning [be installed] to hard shale, subject to final approval once the full excavation has been carried out”. This appears to have related to the underpinning for the new slab.

The development approval, the PCA agreement and the construction certificate

Mr Acres lodged an application for development consent. The plans that he lodged with his application were the Actron plans. It was those plans (with a modification, as to the size of the balcony at the south-western corner) that became the approved plans.
It is not at all clear why the plans submitted to the Council did not include the structural drawings prepared by MHE. The first version of those drawings was prepared and made available to Mr Acres on 14 February 2008. On the same date, MHE gave a certificate of structural adequacy. The effect of that certificate was to certify that the existing building was structurally adequate to accept the loads that would be imposed by the proposed alterations and additions, provided that they were carried out in accordance with MHE’s drawings of the same date.
On about 5 May 2008, the Council accepted appointment as PCA. The next day, 6 May 2008, the Council issued a construction certificate. That certificate referred only to the Actron drawings that were the subject of the development approval. It certified that if the work were carried out in accordance with those drawings, it would comply with relevant provisions of the EPA Regulation.
When the PCA agreement was signed, the Council sent a copy to Mr Acres under cover of a letter dated 6 May 2008. That letter stated that some eleven “critical stage inspections” were to be carried out before Mr Acres could commence the next phase of the works. It also stated that certain documents, including “engineering details for retaining wall, footing & slab reinforcement, structural steel & timber beams and posts” were to be provided to the Council “prior to the commencement of works”.
The condition relating to submission of engineering drawings was not complied with. Mr Acres did have a copy of the engineering drawings on site. The Council officer who carried out the majority of the inspections (the certifier) was unable to give any satisfactory explanation as to why he had not required compliance with this condition.

Progress of the works

Mr Acres retained a number of contractors (none of whom gave evidence) to carry out the construction work. One contractor, Mr Dowell, held a licence to work as an excavator. He performed other tasks including excavation, forming up the slab, placing the slab steel and pouring the concrete, and many other matters. Other contractors were retained to perform other work. In particular, a Mr Pintaric was retained to undertake the blockwork.
Mr Acres said, in effect, that as he engaged each contractor, he showed the contractor numerous documents, including a copy of the Actron drawings, the MHE drawings, the development approval (including a presently irrelevant modification pursuant to s 96 of the EPA Act), and informed the contractor that he would need to carry out his trade work in accordance with those documents. If that practice were followed, it failed in very important respects to achieve the stated object of compliance with the drawings.
On 20 June 2008, a council building surveyor inspected the works. The subject of inspection was said to be the “steel slab”, which was clarified to mean the “slab to rear lower ground”. It is I think common ground that the inspection was of the steel reinforcing for that slab. The surveyor stated that what he inspected was “satisfactory subject to engineer’s certification”. He required the submission of a number of documents including “engineer’s certificate for underpinning to existing rear wall” and “engineer’s details”.
From time to time, Mr Acres requested the Council, in its capacity as PCA, to inspect the works. That was done, and “compliance certificates” were issued.
Also from time to time, the inspecting engineer attended site for the purpose of making inspections. When this was done, he issued site inspection (SI) reports. Mr Acres said that, in addition, the inspecting engineer would call in from time to time, unrequested and unannounced, because he was “doing a number of jobs in your area so it’s easy for me to pop in and check on the progress of the job”. Mr Howes, the principal of MHE, gave evidence of system and documents intended to suggest that this would not have happened. The inspecting engineer, who was said to have called in, was not called. Although he is no longer employed by the engineer, there was no explanation given for the failure to call him. In those circumstances, to the extent that it matters, I accept this aspect of Mr Acres’ evidence.
The works progressed, with inspections by the certifier, for the Council in its capacity as PCA, and issue of compliance certificates, and inspections by the inspecting engineer, and issue of SI reports. Ultimately, so far as the Council was concerned, the works were completed by 10 July 2009. On that date it issued a final occupation certificate pursuant to s 109H of the EPA Act.
The plaintiffs’ pleaded case against MHE and the Council alleges breach of duty in respect of specific inspections carried out by each. As to MHE, the complaints are directed to inspections carried out on 20 June and 1 December 2008. The former related to the raft slab reinforcement, and the latter to the underpinning and “ground floor structural framing”. As to the Council, the specific inspections of which complaint is made are those conducted on 8 July and 15 December 2008. The former related to the blockwork walls – specifically, to the requirement for vertical and horizontal bond beams. The latter related to the inspection of the ground floor framing, including the floor joists, columns and beams, and the roof frame.

The defects

The parties have procured inspections and investigations by building consultants and engineers. As a result, there is substantial agreement on the defects that presently exist. Those defects were summarised in a Scott Schedule, to which the building consultants and engineers all contributed. I take what follows from the version of the Scott Schedule, with the comments of those experts included, that was attached to the joint expert report of building experts (Mr Iskowicz, called for the plaintiffs and Mr Hall, called for MHE). Messrs Iskowicz and Hall said that Mr Ransley, a building consultant who had been retained to give expert evidence on behalf of Mr Acres, had contributed to the preparation of the joint report. However, he did not sign it.
The joint report annexes a schedule which is based on the plaintiffs’ Scott Schedule. The comments of the experts I have identified, and of the engineering experts (Mr Stubbs, called for the plaintiffs and Mr Joannides, called for MHE) are also recorded. The individual experts did not comment on every item. I am prepared to assume that where comments are attributed to Mr Ransley in that schedule, they do reflect views expressed by him at the conference that led to the production of the joint report.
Messrs Iskowicz, Hall, Stubbs and Joannides were cross-examined extensively. Mr Ransley was required to attend for cross-examination, but Mr Acres (who was representing himself) had not arranged for Mr Ransley to appear. I take it, from what Mr Acres said on this topic, that he could not afford the fees that Mr Ransley would charge. In those circumstances, bearing in mind that Mr Acres was self-represented, I permitted him to adduce evidence of Mr Ransley’s views, as expressed in his report of 5 November 2012. However, I stated that where those views were contentious, and were controverted by relevant opinion evidence of other experts, the weight to be attributed to Mr Ransley’s views could be diminished because they had not been tested in cross-examination. That is of particular relevance where, as here, the experts gave evidence concurrently (Messrs Iskowicz and Hall in one session, Messrs Stubbs and Joannides in another) so that each was able to comment on views expressed by the other.

Following the order, and adopting the numbering, of the experts’ schedule, the agreed defects were:

Item 1 – defective construction of lower ground floor slab by failure to install specified N16 starter bars for the vertical bond beam construction and failure to construct the EB3 [edge beam number 3] detail in accordance with engineer’s design

The N16 starter bars were required to link the vertical bond beams, when constructed (and as will be seen, in effect they were not constructed) to the slab. The EB3 detail relates to the set-down intended to act as a drain at the eastern end of the slab, where the new work adjoined the old, so that water moving in a generally westerly (downhill) direction from under the existing structure could be collected and drained away.

Item 2 – defective construction of lower ground floor blockwalls and vertical bond beams

Actron’s design provided for cavity brick walls at the lower ground floor level. MHE changed that to single skin blockwork, and provided for the blockwork walls to be strengthened, so as to accept loads imposed on it, through the system of vertical bond beams and superjacent horizontal bond beams that I have described. The vertical bond beams were to have N16 reinforcing steel bars. As constructed, some had N12 rather than N16 bars (the numbers refer to the diameter in millimetres); some entirely lacked reinforcing bars.
Further, the vertical bond beams were required to be grouted (i.e., filled with concrete). In some cases they were partially grouted and in others, grouted only minimally if at all.
In addition, under Item 2, the engineers dealt with the defective construction of the horizontal bond beam. They agreed that the specified N16 reinforcement was entirely lacking, as was the concrete core filling.
Finally, and as I have noted, the construction of the bond beams was defective because there was no provision for “cogging in”, through N16 reinforcing steel, the vertical bond beams to the horizontal bond beam.
The result of those defects taken together was, as the engineers put it, “that the defective bond beams are not structurally adequate to support the building loads”.

Item 3 – defective construction of the ground floor structural framing and horizontal bond beam

As I have noted, the engineers dealt with the defective construction of the horizontal bond beam under Item 2.
As to the defective framing, the engineers agreed that the floor joist framing for the ground floor level had not been constructed in accordance with the relevant Australian Standard, because the floor joists had not been fixed to the (supposedly) supporting blockwork walls using continuous solid blocking or another acceptable method.
Further, because the vertical and horizontal bond beams had not been properly constructed (or in some cases, constructed at all), the blockwork walls were inadequate to support the weight of the floor joists and overlying structures.
Mr Stubbs noted the use of blockwork rather than cavity brick for the ground floor walls as a defect. He referred also to the failure to install supporting steel beams as shown in the engineer’s drawings, and to the installation of laminated timber beams and balustrades to the balconies inconsistent with those drawings.
Mr Joannides accepted that these changes had been made. He said, as to the balconies, that there would not be a structural defect “provided… the balconies were fully waterproofed”. Mr Stubbs made the obvious point that, since the balconies had not been properly waterproofed, there was a structural defect. It is common ground that the balconies must be demolished and rebuilt. That becomes relevant for another purpose, because, regardless of defects, demolition of the balconies would be necessary in any event to enable the western wall to be braced by structurally capable scaffolding during the course of repairs.

Item 4 – defective construction of the ground floor external walls

The ground floor external walls were constructed of single skin blockwork. There were no vertical or horizontal bond beams installed. The result, the engineers agreed, was that the walls as constructed “are not structurally adequate to support the building loads”.
The engineers agreed that for the ground floor works, the structural drawings showed brick veneer walls to the north and south, and, to the west, reinforced blockwork walls with steel columns and steel beams above. Those last matters (the steel columns and beams) are the subject of item 5.

Item 5 – defective construction of ground floor structural steel framing

MHE’s drawings called for steel columns to be installed in the western wall on either side of the large central window, to support a steel beam that was to be welded to those columns. The engineers agreed that the steel columns had not been installed and that the roof beams that were installed were not supported adequately. In particular, the roof beams were not bolted to the blockwork walls (which in any event were inadequate to sustain the load).

Item 6 – defective construction of roof framing

It is common ground that the roof framing was defective, because the framing members were not mechanically connected (bolted) to the external walls. The engineers agreed that, as constructed, the roof framing “is not adequate to withstand the building loads, including wind uplift”.

Item 7 – defective and non-compliant internal stair

The engineers did not consider this item because they did not consider it to be a structural engineering defect. If I may say so, that must be correct; and it is correct notwithstanding that the schedule included this item among the asserted “structural defects”. I add that in any event, MHE was not responsible for the design of the stairs.
Mr Iskowicz and Mr Ransley agreed that the stair did not have a consistent and even riser height, and that the balustrade did not comply with the relevant provisions of the Building Code of Australia (BCA). They disagreed as to the extent of work required to repair. Mr Iskowicz thought that the whole stairway should be demolished and reconstructed, and fitted with a complying balustrade. Mr Ransley thought that demolition and reconstruction of part only of the stair was necessary; but appeared to agree that there should be a new, complying, balustrade.
This is one of those areas where, Mr Ransley not having been called, I prefer the evidence of Mr Iskowicz.

Items 8, 9 and 10 – internal wet area waterproofing

The engineers did not address these items. Again, they took the view that the items were not “structural defects”. Again, I think, that view was correct; and again, it is correct notwithstanding that the schedule places the defects in the “structural” category. MHE did not have anything to do with the waterproofing.
Evidence as to these defects came from Messrs Iskowicz and Ransley. There was no dispute as to the identification and nature of the defects, nor (in principle at least) as to the scope of works necessary to rectify them. It is not necessary to go into further detail at this point.

Item 11 – not used

Item 12 – external ground levels

This item relates to paving at the front entry. It is not a structural item. The essential problem is that the incorrect levelling of the paving does not properly direct water away from the building. Mr Iskowicz did not suggest that any consequent structural defect was apparent. Mr Ransley agreed. It may be that if water continues to flow as it does, it will cause some structural damage in the future.

Item 13 – overhead electrical service mains attachment

This is not a structural defect. Messrs Iskowicz and Ransley agreed that the mains connection was required to be, but was not, at least 3 metres above the front balcony that Mr Acres had constructed (it was 2.4 metres above). They agreed that it needed to be relocated.

Item 14 – living room balcony

Messrs Stubbs and Joannides dealt with this in connection with item 3, and I have referred to their comments at that point.

Item 15 – driveway retaining wall

Mr Stubbs said that the retaining wall was structurally inadequate to support the imposed loads, which included loads imposed by the new work done at the front of the house: the construction of a front porch with balcony above. Mr Iskowicz accepted that opinion. Mr Ransley expressed no opinion, on the basis that he had been instructed that Mr Acres did not construct the retaining wall in question. MHE did not design this wall.

Item 16 – defective front garden retaining wall

The engineers did not express an opinion on this. Mr Iskowicz contended that the wall was defectively constructed. Mr Ransley relied on instructions given to him that Mr Acres did not construct that wall. Mr Iskowicz responded that it was shown on sheet 7 of the MHE drawings.
Mr Iskowicz was correct to say that the retaining wall is shown on drawing S07. That drawing shows in plan a zigzag wall running from the northern boundary (at the front of the property) to the driveway, roughly aligning with Roland Avenue. It provides construction details showing that a blockwork wall is to be constructed on concrete footings, with an agricultural drain behind. The design also includes a typical corner detail and a typical expansion joint detail.
It does not appear to be disputed that the retaining wall as constructed is defective, as Mr Iskowicz said. It is not said that the design was inadequate.

Item 17 – not used

Item 18 – main bathroom waterproofing

This relates to the new bathroom that was constructed as part of the extensions at the western end of the property.
Mr Iskowicz said that the defects included both the lack of a compliant water stop angle either in the shower assembly or at the threshold of the room, and a defective waterproofing membrane installation to the wet area. I am not sure that Mr Ransley agreed with the extent of the defects. In the circumstances, bearing in mind that Mr Ransley’s views were not tested in cross-examination, I prefer the evidence of Mr Iskowicz on this point.
The difference is of some significance, because on Mr Iskowicz’s view, the combined nature of the defects is such that the whole bathroom must be stripped out and rebuilt, including the tiling.
Messrs Stubbs and Joannides did not comment on this or the next two items.

Item 19 – waterproofing to bathroom en suite with master bedroom

The master bedroom is located in the existing section of the house. As part of the work undertaken by Mr Acres, it was provided with a bathroom en suite in the extensions to the west.
Again, Messrs Iskowicz and Ransley agree that there are waterproofing defects. Again, there may be a disagreement as to the extent of those defects. Again, if there is, I would prefer the evidence of Mr Iskowicz, for the reasons given.

Item 20 – external roofing

It was common ground that the acrylic skylights that had been fitted were not fit for purpose. In addition, Mr Iskowicz said that some of the roof tiling was defective, which permitted water entry, and that there were defects in the roof drainage.
The “roof tiling” allegation relates to the roof over the front entry porch and balcony, which was part of the works undertaken by Mr Acres.
Mr Ransley said, as to the apparent defects asserted in the metal (skillion) roof, at the rear, that he relied on Mr Acres’ instructions that this roof had been repaired by others following storm damage (see at [17] above). As to the tile roof, Mr Ransley relied on instructions from Mr Acres that he had not undertaken this work.
I find that the defects alleged by Mr Iskowicz do exist. Whether or not Mr Acres is liable for them is a different matter.

Item 21 – the north boundary retaining wall

MHE provided a drawing (SK01) for a retaining wall, 2 metres high, along or near the northern boundary of the property (I am not sure of the precise location, but nothing turns on this). The drawing showed a wall to be constructed on concrete footings with an agricultural drain behind. The wall was to be constructed of blockwork, with N20 starter bars from the footings into the lower levels, N16 horizontal bars at specified locations, and N12 vertical bars at specified locations, then filled with concrete.
What was constructed was a “Dincel” wall. As I understand it, that is a proprietary system for constructing concrete walls using permanent polymer formwork filled with ready-mixed concrete. The engineers agreed that the wall had been so constructed and not as drawn. They added that it was constructed with “unknown reinforcement”. In those circumstances, they agreed, the wall could not be certified as structurally effective. No one said that MHE’s design was inadequate.
The engineers agreed on a method of rectification. Since there was no challenge to the suggested method of rectification, it is not necessary to go into the detail.

Summary

What I have set out is effectively a non-contentious summary of the defects. However, it is important to understand that the responsibility for individual defects is contentious. The bases of contention are varied. At a level of some generality, I note that it seems to be common ground that the work the subject of items 7 to 10, 12, 13, and 15 to 20 had nothing to do with any structural design or inspection undertaken by MHE. Further, although the design for the front retaining wall the subject of item 16 was prepared by MHE, there is no complaint as to the adequacy of the design. MHE was not required to inspect, and did not inspect, the construction of that retaining wall.

The case against Mr Acres

As I have said, the plaintiffs’ claim against Mr Acres is based on breach of the statutory warranties contained in s 18B of the HB Act.
There is no doubt that Mr Acres was an “owner-builder”, and that the work he did was “residential building work”, as those expressions are defined in s 3 of the HB Act. Nor is there any doubt that the plaintiffs were the immediate successors in title to Mr Acres, for the purposes of s 18C of the HB Act. As I have said, there was no point taken that Mr Acres’ former wife was a necessary party, or that the claim against him under the HB Act was unavailable because she had not been joined. In case it be thought that this reflected Mr Acres’ inexperience, and his difficulties as a self-represented litigant, I should make it quite clear that his list response was drafted and settled by lawyers then retained by him, as indeed were his affidavits.
The effect of s 18C is to create what might be called a deemed or statutory contract between the (in this case) owner-builder and his immediate successors in title, for the purpose of the former giving to the latter the statutory warranties in s 18B.
I set out ss 18B and 18C:

18B Warranties as to residential building work
(1)    The following warranties by the holder of a contractor licence, or a person required to hold a contractor licence before entering into a contract, are implied in every contract to do residential building work:
(a)   a warranty that the work will be done with due care and skill and in accordance with the plans and specifications set out in the contract,
(b)    a warranty that all materials supplied by the holder or person will be good and suitable for the purpose for which they are used and that, unless otherwise stated in the contract, those materials will be new,
(c)    a warranty that the work will be done in accordance with, and will comply with, this or any other law,
(d)    a warranty that the work will be done with due diligence and within the time stipulated in the contract, or if no time is stipulated, within a reasonable time,
(e)    a warranty that, if the work consists of the construction of a dwelling, the making of alterations or additions to a dwelling or the repairing, renovation, decoration or protective treatment of a dwelling, the work will result, to the extent of the work conducted, in a dwelling that is reasonably fit for occupation as a dwelling,
(f)    a warranty that the work and any materials used in doing the work will be reasonably fit for the specified purpose or result, if the person for whom the work is done expressly makes known to the holder of the contractor licence or person required to hold a contractor licence, or another person with express or apparent authority to enter into or vary contractual arrangements on behalf of the holder or person, the particular purpose for which the work is required or the result that the owner desires the work to achieve, so as to show that the owner relies on the holder’s or person’s skill and judgment.
(2)    The statutory warranties implied by this section are not limited to a contract to do residential building work for an owner of land and are also implied in a contract under which a person (the "principal contractor") who has contracted to do residential building work contracts with another person (a "subcontractor" to the principal contractor) for the subcontractor to do the work (or any part of the work) for the principal contractor.
18C Warranties as to work by others
(1)    A person who is the immediate successor in title to an owner-builder, a holder of a contractor licence, a former holder or a developer who has done residential building work on land is entitled to the benefit of the statutory warranties as if the owner-builder, holder, former holder or developer were required to hold a contractor licence and had done the work under a contract with that successor in title to do the work.
(2)    For the purposes of this section, residential building work done on behalf of a developer is taken to have been done by the developer.

Of the six warranties for which s 18B provides, those of particular relevance are paras (a) and (e).
There is a limited defence provided by s 18F:

18F Defences
(1)    In proceedings for a breach of a statutory warranty, it is a defence for the defendant to prove that the deficiencies of which the plaintiff complains arise from:
(a)    instructions given by the person for whom the work was contracted to be done contrary to the advice of the defendant or person who did the work, being advice given in writing before the work was done, or
(b)    reasonable reliance by the defendant on instructions given by a person who is a relevant professional acting for the person for whom the work was contracted to be done and who is independent of the defendant, being instructions given in writing before the work was done or confirmed in writing after the work was done.
(2)    A relevant professional is independent of the defendant if the relevant professional was not engaged by the defendant to provide any service or do any work for the defendant in connection with the residential building work concerned.
(3)    A relevant professional is not independent of the defendant if it is established that the relevant professional:
(a)    was engaged on the basis of a recommendation or referral of the defendant to act for the person for whom the work was contracted to be done, or
(b)    is, or was within 3 years before the relevant instructions were given, a close associate of the defendant.
(4)    In this section, "relevant professional" means a person who:
(a)    represents himself or herself to be an architect, engineer or surveyor, or
(b)    represents himself or herself to have expert or specialised qualifications or knowledge in respect of residential building work or any particular aspect of residential building work, or
(c)    represents himself or herself to be engaged in a profession or to possess a qualification that is recognised by the regulations as qualifying a person as a relevant professional.

It is a little difficult to see how s 18F can be relevant to an owner-builder. In any event, Mr Acres did not plead the section by way of defence.
In my view, the defects that have been proved, as I have summarised them in the preceding section of these reasons, are such that the case of breach is made good. It could not possibly be said that the work that was done was performed in a proper and workmanlike manner. In many respects, it was not done in accordance with the relevant plans and specifications, although given that there was no written contract, that may be nothing more than a reason why the work was not done in a proper and workmanlike manner.

Nor could it be said that work, as defective as that which was done, resulted in the creation of a dwelling (in this case, extensions to a dwelling) reasonably fit for occupation as a dwelling. On the contrary, it is the view of all the relevantly qualified experts that the extensions are structurally unstable and dangerous, to the point that they ought be used as little as possible. The engineers agree that it is important for the remedial structural work to be carried out as soon as possible. Effectively, the plaintiffs have paid for extensions that they cannot use.
Nor is it only the structural defects that support the conclusion of breach of para (e). Other defects, including specifically the waterproofing defects, lead inevitably to the same conclusion.
In my view, it follows that, to the extent that Mr Acres was responsible for the execution of the works, he has breached the warranties under s 18B(a) and (e) of the HB Act.
Mr Acres said that some of the works that had been the subject of complaint were not works done by him as owner-builder. The works that Mr Acres said fell into this category were (by reference to the list set out above) items 12, 15 and 16. In addition, as to item 20, Mr Acres said that he did not carry out or arrange for the carrying out of any work on the existing roof or skylight. Finally, as I have noted, Mr Acres said that if there were defects in the skillion roof over the western extension, he was not responsible because that roof had sustained storm damage when a tree fell on it, and had been repaired by tradesmen retained by his insurer.
Those aspects of Mr Acres’ evidence were not challenged. Accordingly, I accept them. It must follow that Mr Acres cannot be held liable for those defects. But he is liable for the others.
I return later in these reasons to the question of the cost of repairs, and to the question of apportionment (or proportioning) between the parties.

Common law duty of care: relevant principles

The plaintiffs’ claims against MHE and the Council relied on common law duties of care. Since the analysis as to whether either of those defendants owed such duties of care proceeds upon the same basis, I propose to deal with the principles before turning to the individual claims.
It was common ground between the plaintiffs, MHE and the Council that the loss that the plaintiffs claimed to have sustained (and as will be apparent from what I have said, they have sustained) is “pure economic loss”.
Accordingly, the principles bearing on the imposition of a common law duty of care to avoid such loss are those developed in cases such as (starting from the most recent) Brookfield Multiplex Ltd v Owners – Strata Plan 61288 (2014) 88 ALJR 911 and Woolcock Street Investments Pty Ltd v CDG Pty Ltd (2003) 216 CLR 515. I should add that the cases cited by Counsel ranged well beyond those two.
To say that one person owes another a duty of care is to make a statement about a legal aspect, or incident, of the relationship between those two people. See Barwick CJ in The Mutual Life and Citizens’ Assurance Company Limited v Evatt (1968) 122 CLR 556 at 565–566. The statement is a conclusion, based on all the salient features of the relationship.
Where the duty is said to be one to use reasonable care to avert the risk of economic loss that the second person might suffer from want of due care on the part of the first, foreseeability of loss is not sufficient. At a level of very general principle, it may be said that the common law does not recognise that mere foreseeability of the risk of economic loss, flowing from the want of due care on the part of someone, is sufficient to warrant the imposition on that person of a duty of care to take reasonable care to avert that loss.
Knowing that the other person may suffer loss is saying, in different words, that the other is, in the general sense of the word, “vulnerable” to that loss. What is required to convert vulnerability from its generally accepted English meaning to the more limited and precise meaning that it has in this field of discourse? The answer is to be found, not at some abstract level of principle, but through detailed examination of the relationship.
What, then, are the detailed features of the relationship that create vulnerability in this special sense? Again, in my view, the question is not capable of answer at a high level of abstraction. Again, it requires analysis of all salient features of the relationship, with that analysis informed analogically, by reference to precedent.

A brief survey of some of the authorities

Ms Painter of Senior Counsel, who appeared with Mr Walsh of Counsel for the plaintiffs, submitted that the decision in Bryan v Maloney (1995) 182 CLR 609 remained relevant. I am not sure that this is correct: at least, not in any way of present utility. Although the decision in Bryan was not overruled in either Woolcock Street or Brookfield (nor in any other decision of the High Court), it is clear that it remains authority only for the very precise and limited principle stated in it. As McHugh J put it in Woolcock Street at [71]:

The ratio [of Bryan] can be put no higher than that the builder of a dwelling house owes a duty to a subsequent purchaser to take reasonable care to avoid reasonably foreseeable decreases in its value arising from the consequences of latent defects caused by the house’s defective construction. Neither the stated reasons of the Court nor the material facts of the case justify any wider conclusion.

His Honour’s statement of the principle decided by Bryan was picked up by Gageler J in Brookfield, who said at [185]:

The continuing authority of Bryan v Maloney should be confined to a category of case in which the building is a dwelling house and in which the subsequent owner can be shown by evidence to fall within a class of persons incapable of protecting themselves from the consequences of the builder’s want of reasonable care.

If I may say so with respect, his Honour’s statement of the ratio in Bryan appears to be even narrower than the statement of McHugh J in Woolcock Street. Nothing turns on this, except (obviously enough) the need, particularly at the trial level, to proceed with care in seeking to apply the reasoning in Bryan beyond the precise proposition for which it is authority.
By contrast, Mr Elliott submitted that:

… by virtue of changes in the underlying jurisprudence concerning the law of negligence since Bryanv Maloney [was decided], this Court is [not] bound to follow the ratio in Bryan and is instead obliged to follow current jurisprudence [which] would “trump” any competing obligation to follow the ratio in Bryan.

I note that submission, but cannot accept it. The High Court has considered Bryan at least twice, in cases dealing with building defects: Woolcock Street and Brookfield. It has twice affirmed that the decision in Bryan must be confined to its own facts; but it has twice declined to overrule Bryan. It seems to me that if the decision in Bryan is to be overruled, that is a matter for the High Court. It follows, I think, that unless and until the High Court does overrule Bryan, courts lower in the hierarchy would be bound to apply the ratio of Bryan if a case arose on materially indistinguishable facts. Thus, one matter of key significance is: are the facts in this case materially distinguishable from those in Bryan? I deal with this at [205] to [209] below.
Of course, the common law develops through analogical reasoning. However, the extension by analogy of settled categories where a duty of care has been owed must be performed in a principled way. That task requires the identification of the salient features of the relationship that were found to justify the imposition of duty in the decided case, and analysis of the facts of the case to be decided, to see the extent (if at all) to which equivalent salient features may be present.
Bryan was decided in the days when the imposition of a common law duty of care was thought to be governed by the notion of proximity. Proximity has been discarded, at least as a definitive label. Nonetheless, in my view, it is clear that the factors underlying the label “proximity”, namely the salient features of the relationship between the defendant and the plaintiff, remain critical in the analysis. McHugh J made this plain in Perre v Apand Pty Ltd (1999) 198 CLR 180 at [105]. His Honour said:

The principles concerned with reasonable foreseeability of loss, indeterminacy of liability, autonomy of the individual, vulnerability to risk and the defendant's knowledge of the risk and its magnitude are, I think, relevant in determining whether a duty exists in all cases of liability for pure economic loss. In particular cases, other policies and principles may guide and even determine the outcome. But I do not think that a duty can be held to exist in any case of pure economic loss without considering the effect of the application of these general principles.

McHugh J reiterated that analysis in Woolcock Street at [74]. At [75], His Honour repeated that other policies and principles may be determinative in particular cases. In short, as I understand it, the relevant principles that his Honour identified were not to be taken as the only principles. And, as his Honour said at [80], vulnerability:

… is a key issue in determining whether the defendant owned a duty of care to the plaintiff. Indeed, the issue of the purchaser’s vulnerability to economic loss is the critical issue in determining whether those involved in the construction of commercial premises owe a duty of care to the purchaser. In this context, vulnerability to risk means not that the plaintiff was exposed to risk but that by reason of ignorance or social, political or economic constraints, the plaintiff was not able to protect him or herself from the risk of injury.

McHugh J appears to have concluded that the appellant in Woolcock Street was not relevantly vulnerable: see his Honour’s reasons at [96], [114]. However, the conclusion to which his Honour came was expressed not just in terms of the particular plaintiff, but more widely. His Honour said at [115]:

In my opinion, the law of negligence is best served by leaving it to the market and the law of contract to determine who should bear the economic loss that arises as the result of a fall in the value of a commercial building consequent upon the discovery of latent defects in the building.

McHugh J considered other relevant policy factors at [89] to [105]. Those factors related to the responsibility of the defendant to control third parties; whether the imposition of the duty would outflank the law of contract; the floodgates argument; the problem of disproportionate liability; the lack of a measurable standard of care; and whether (more accurately, the extent to which) imposing the duty would circumvent the policy of limitation legislation.
In the joint judgment in Woolcock Street, Gleeson CJ, Gummow, Hayne and Heydon JJ pointed out at [14] that the conclusion in Bryan, that the builder owed a duty to subsequent owners to take reasonable care to avoid economic loss, depended “upon the anterior step of concluding that the builder owed the first owner a duty of care to avoid economic loss of that kind”.
At [27] of Woolcock Street, the joint judgment concluded that the appellant’s contention that the respondents owed it a duty of care could not be supported by the reasoning in Bryan. That was so, their Honours said, because “the anterior step of demonstrating that the respondents owed a duty of care to the original owner is not made out”.
I emphasise this point because some of the submissions put for MHE and the Council appeared to take the statement at [27] beyond what I think is its intended operation. Those submissions, based on the joint judgment at [27], appeared to suggest that no duty of care could be imposed in favour of a subsequent owner unless the person on whom that duty was sought to be imposed had owed an equivalent duty to the first owner.
In my view, that submission overstates what their Honours said. They said that, absent demonstration of the existence of the anterior duty of care, the reasoning in Bryan would not support the imposition of the duty alleged in the facts before the Court. In short, as I understand it, their Honours suggested that the precise ratio of Bryan was even narrower than as stated by McHugh J in Woolcock Street, because it was restricted further by the requirement that the builder should be shown to have owed a duty of care to the original owner.
What is apparent from the joint judgment in Woolcock Street at [31] is that a common law duty of care to avoid economic loss will not be imposed unless it can be shown that the plaintiff is “vulnerable” in the sense explained by their Honours. In this context, “vulnerability” refers to the inability of the plaintiff to protect itself against the economic loss that it (alleges it) has suffered.
On the plurality’s view, the appeal failed for two reasons. First, the appellant could not succeed, simply by application of the reasoning in Bryan, because an essential step in that reasoning – demonstration of the existence of the anterior duty of care – was lacking. Second, the appellant could not succeed otherwise because it had not shown that it was relevantly vulnerable. In those circumstances, it was unnecessary for the plurality to go further.
That analysis of the significance, or relevance, of the anterior duty of care is, I think, supported by the reasoning of French CJ in Brookfield at [28]. His Honour said that the Court in Woolcock Street did not decide that the absence of any anterior duty of care would always deny the existence of a duty of care to a subsequent purchaser. It was, his Honour said, an important factor, but (my words, not his Honour’s) not decisive.
Before I leave the decision in Woolcock Street, I should refer to the reasons of Callinan J at [227]. His Honour there pointed out the importance of risk allocation between the parties to the original contract. As his Honour said, such parties should not be obliged to allocate risks and rights “in order to give some unknown person in the future rights against one or other of them”. His Honour added:

If commercial freedom is to be impaired in this way it is better done by statutory intervention. In the meantime the rule of caveat emptor, which is little more than a rule that people should act diligently, prudently and carefully in their own interests should apply.

The judgments in Brookfield reinforce the importance of examining “the salient features of the relationship” (to quote French CJ at [30]). It is only by doing so, as the Chief Justice said in the same paragraph, that the Court can determine whether one party was vulnerable, in the relevant sense, and whether the other owed it a duty of care.
Although French CJ emphasised the need to look at all the salient features of the relationship, I think it is fair to observe that the reasoning in the four judgments that were given (French CJ; Hayne and Kiefel JJ; Crennan, Bell and Keane JJ; and Gageler J) focused on vulnerability, in the sense of “the inability of the plaintiff to take steps to protect itself from the risk of loss” (Crennan, Bell and Keane JJ at [130]).
One important matter that emerges from the judgments in Brookfield is the relevance, particularly in any consideration of vulnerability, of known reliance and assumption of responsibility. French CJ at [33] thought that there was no reliance, nor any assumption of responsibility. Likewise, Crennan, Bell and Keane JJ stated (at [150]) that there was no basis for finding either “an assumption of responsibility by the appellant in favour of the respondent, or known reliance on the appellant on the part of the respondent, in relation to the quality of the common property of the serviced apartment complex”.
Hayne and Kiefel JJ took a slightly different approach. At [56], their Honours said that it might be “assumed, without deciding, that the developer and the purchaser of a lot from the developer relied on the builder to do its work properly”. At [57], their Honours stated that “[r]eliance, in the sense just described, may be a necessary element in demonstrating vulnerability, but it is not a sufficient element”.
I return at [142] and following to the significance of reliance and assumption of responsibility, in this case, as either determinants or indicators of the existence of a duty of care.
The judgment of Crennan, Bell and Keane JJ identified another important matter: the potential for disproportion between the liability that the suggested duty of care would impose on the builder, compared to the liability imposed on the builder by its contract with the developer. Their Honours said at [69]:

To impose upon a defendant builder a greater liability to a disappointed purchaser than to the party for whom the building was made and by whom the defendant was paid for its work would reduce the common law to incoherence.

Their Honours picked up on this point at [139]:

In this case, by contrast, there was no substantial equivalence between the obligations of the appellant to the developer and the duty propounded by the respondent. That may be seen by a consideration of the terms of the contract between the appellant and the developer to which reference will be made in the next section of these reasons.

To my mind, the reasoning in Brookfield shows that, in determining whether to impose a common law duty of care to avoid pure economic loss, in facts for which there is no precise authority (that is, where the precise duty of care has not been recognised in decided cases), the Court must look at the relevant features of the relationship between the plaintiff and the defendant. An essential feature is that the plaintiff must be shown to have been “vulnerable” in the sense explained. Reliance on the defendant, and knowledge by the defendant of that reliance, will be at least an important, and perhaps a necessary, condition of vulnerability.
However, in undertaking the analysis by reference to decided cases (in the performance of the process of analogical reasoning to which I referred earlier in these reasons) it is important to bear in mind the warning given by McHugh J in Woolcock Street at [73]. His Honour said, among other things:

Facts that are regarded as material for the purpose of one legal doctrine are not necessarily material for another purpose. The materiality of facts depends on the principle or principles that is or are applied to them. Once the stated principle of a case is rejected or distinguished, the materiality of the particular facts of the case must depend on the new principle or doctrine that governs the case.

In the same paragraph, his Honour pointed out the importance of reliance. He explained the decision in Bryan as being:

[T]hat the builder of a dwelling house owes a duty to a subsequent purchaser who relies on the skill of the builder to protect that person from reasonably foreseeable decreases in value resulting from latent defects in the house.

The submissions of Counsel ranged far more widely. I do not wish to be disrespectful either to those submissions or to the cases on which they relied, if I do not refer to every single decided case to which I was referred. However, two, on which Ms Painter relied, do require mention.
The first decision is that of Victorian Court of Appeal in Moorabool Shire Council v Taitapanui (2006) 14 VR 55. The judgments in that case (Maxwell P giving one judgment and Ormiston and Ashley JJA giving a joint judgment) emphasised the importance of identifying relevant features of the relationship between the parties. Although in my view the ultimate decision in that case depended very substantially on particular features of Victorian legislation which are not found in equivalent legislation in this State, one point that Ormiston and Ashley JJA made at [154] is significant. Their Honours pointed out, of the certifier Mr Mellis, that:

[I]t is of critical importance that Mellis was a person who voluntarily agreed to perform important statutory functions and duties bearing upon the soundness of the premises which were to be constructed. The performance of those functions and duties could readily be seen to impact not only upon the owners of the premises at the time of their construction but also upon any subsequent owners in the seven year period after the permit was issued. Further, for the performance of such functions and duties, Mellis’ employer, at least, was remunerated.

The significance of that, their Honours said, included the following (at [156]):

Further, it should be noted that the work which Mellis was obliged to perform, once he assumed the role of building inspector in respect of the particular premises,gave effective authority – if a building permit was issued, inspections were satisfactory and an occupancy permit was issued – for the building and occupation of a home. It need hardly be said that for most people the purchase of a home is a major personal decision, that the structural soundness of the home is of first importance, and that homes are often enough the subject of resale.

An application for special leave to appeal to the High Court was refused ([2006] HCATrans 328). I acknowledge that reasons given for dismissing applications for special leave create no precedent (Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd [2015] HCA 37 at [112], [119]). Nonetheless, it is interesting to note that Hayne J pointed out, in the course of giving the Court’s decision to refuse special leave, that “in important respects the decision of the Court of Appeal turns on the particular nature of the obligations owed under applicable Victorian statutes… .”
If I may say so, his Honour’s observation encapsulates the reason why, in my respectful view, the decision in Moorabool is of little assistance in this case.
The other case to which I wish to refer specifically is the decision of the Court of Appeal of this state in Western Districts Developments Pty Ltd v Baulkham Hills Shire Council (2009) 75 NSWLR 706. In that case, the appellants asserted that the respondent Council owed them a duty of care. The respondent, acting as a PCA, had issued a subdivision certificate without being satisfied that a relevant condition of development consent had been met. The consequence was that the appellants were required to pay a sum of money to procure satisfaction of that condition.
The Court of Appeal held that the respondent did owe the duty of care alleged. Their Honours concluded, among other things, that the respondent had acted not as a Council (i.e., in its administrative or consent capacity) but as the PCA appointed by contract under s 109E of the EPA Act. In those circumstances, they said, the question of liability was not to be examined as though it were being asserted that a public authority acting as such were subject to a common law duty of care (see, in particular, Preston CJ of LEC, with whom relevantly Giles JA agreed, as did Campbell JA, at [66]).
Moving to the question of duty of care, Giles JA noted at [10] that:

[W]hile vulnerability is an important factor in whether or not a duty of care to guard against economic loss is owed, it is not the sole consideration. On current jurisprudence, the decision that a duty of care is owed or is not owed is arrived at in novel circumstances upon a “multi-factorial” approach with a close analysis of the facts bearing on the relationship between the plaintiff and the defendant and regard to “salient features”… .

Preston CJ of LEC dealt with the concept of vulnerability from [77]. It is clear, I think, that his Honour’s conclusion that the appellants were relevantly vulnerable depended very much on the particular statutory scheme. His Honour held that, because the issue of the subdivision certificate meant that the plan of subdivision could be registered and lots sold and transferred to purchasers, the economic consequences of any non-compliance with conditions of consent would be transmitted to, and could be visited upon, those purchasers. That, his Honour said at [82], was something from which purchasers could not protect themselves.
His Honour then said, at [85] to [89]:

[85]    Prospective purchasers who have entered a conditional contract to purchase an allotment to be created by the subdivision, such as the applicants in this case, cannot withhold from purchasing the subdivided allotment once the plan of subdivision has been registered if they discover that the principal certifying authority issued the subdivision certificate without being satisfied that each of the applicable requirements in s 109J(1) and (2) had in fact been met. They are obliged to complete the contract upon registration of the plan of subdivision. They cannot renegotiate the price or the terms of the contract.
[86]    It is also not reasonable to expect that prospective purchasers should protect themselves, before the principal certifying authority exercises the statutory power to issue a subdivision certificate, against the consequences of any potential misexercise of the power.
[87]    In theory, prospective purchasers could seek to protect themselves by insisting upon a provision in the contract for sale entitling them to decline to complete the contract or to be compensated by the vendor if the principal certifying authority misexercises the statutory power. But in practice, this would not happen. A prospective purchaser would not anticipate that the principal certifying authority might misexercise the statutory power and, therefore, would not seek inclusion of a contractual provision to protect itself against loss from such unanticipated conduct.
[88]    Even if a contractual provision entitling non-completion were to be included, such a provision would provide inadequate protection against economic loss for prospective purchasers. If they do not complete the purchase of the property, they will suffer the loss of the property and the benefits that it might have yielded to them. Hence, this step only changes the loss to them, not protect [sic] them against any loss.
[89]    Moreover, including a contractual provision entitling non-completion by the purchaser or compensation by the vendor does not cast the consequences of loss on the principal certifying authority. The burden remains either on the purchaser or the vendor of the lot.

Those paragraphs of his Honour’s reasoning show a very important point of distinction between the facts of that case and the facts with which I am concerned (quite apart from the relevant features of the statutory scheme that his Honour had examined). The purchasers had agreed to buy lots in land to be subdivided. Completion of the contract was conditional upon registration of the plan of subdivision. However, once that plan was registered, the purchasers could not resist completion on the basis that there had been some defect in the exercise of the power to issue a subdivision certificate. And as his Honour had said in effect at [84], purchasers should not be forced to contract on the basis that the PCA has exercised its powers improperly, or to make inquiries about the propriety of the exercise of power.
In short, the appellants in that case were held to have been vulnerable because the factual situation that caused their loss did not arise until after they had bound themselves to purchase, and was not something against which (on his Honour’s view) they should reasonably have been expected to protect themselves. It is not immediately obvious that those considerations apply where (as here) people decide to buy a house as their residence, knowing that it has recently been renovated under the “supervision” (an inaccurate but convenient term) of a PCA.
The decision in Western Districts does however illustrate that purchasers of land may be found to have relied on the proper performance of functions by PCAs, where it is obvious that those functions had to be and were performed. This somewhat general observation is given particular point in the present case by the evidence of the certifier (who appears to have been a very experienced building surveyor). I shall return to this aspect of his evidence at [358] to [360] below. For present purposes, the point of it is that he accepted that the owner for whom residential building work was undertaken, or the owner/builder who performed it, would rely upon the occupation certificate, and likewise that subsequent purchasers would look at it “to satisfy themselves… that the work had been inspected and that it had been passed”.
I should note that when Giles JA, in the passage I have quoted at [135] above, referred to the importance of identifying the salient features of a relationship for the purpose of determining whether a duty of care should be imposed, his Honour cited the judgment of Allsop P in Caltex Refineries (Qld) Pty Ltd v Stavar (2009) 75 NSWLR 649 at [101] to [108]. I shall return to one aspect of what Allsop P there said.

Reliance and assumption of responsibility

Whether known reliance (or assumption of responsibility) is an essential (but not sufficient) requirement for the existence of vulnerability in the relevant sense, or whether it falls to be considered more generally, is not clear. As I noted at [121] above, Hayne and Kiefel JJ suggested the former.
I am not sure that the judgment of Hayne and Kiefel JJ in Brookfield at [57] should be taken to establish conclusively that reliance (in the sense their Honours used that word) is a necessary element of vulnerability. I observe, first, that their Honours used reliance in the sense they described at [56]:

… that the developer and the purchaser of a lot from the developer relied on the builder to do its work properly.

None of the other judgments in Brookfield went so far as to say that reliance, in that (or any other) sense, was a necessary condition for the existence of vulnerability. Further, there are statements in other decisions of the High Court which strongly suggest the contrary.
In Perre v Apand Pty Ltd (1999) 198 CLR 180, McHugh J considered “concepts of reliance and assumption of responsibility” at [124] and following. His Honour said at [124] that neither was either necessary or sufficient to justify the imposition of a duty of care to avoid economic loss. He referred to the plurality judgment in Bryan at 619, and to the judgment of Deane J in Hawkins v Clayton (1988) 164 CLR 539 at 576. McHugh J said (at [124] of Perre) that:

Like proximity, reliance and assumption of responsibility are neither necessary nor sufficient to found a duty of care.

McHugh J said at [125], [126] that reliance and assumption of responsibility were indicators of vulnerability, and that it was vulnerability rather than its evidentiary indicators which determined whether a duty of care exists. However, his Honour said (at [126]), in some circumstances “reasonable reliance” could show that the plaintiff was relevantly vulnerable. I set out those paragraphs:

[125] In my view, reliance and assumption of responsibility are merely indicators of the plaintiff's vulnerability to harm from the defendant's conduct, and it is the concept of vulnerability rather than these evidentiary indicators which is the relevant criterion for determining whether a duty of care exists. The most explicit recognition of vulnerability as a possible common theme in cases of pure economic loss is found in the judgment of Toohey and Gaudron JJ in Esanda Finance Corporation Ltd v Peat Marwick Hungerfords.
[126] Reliance may therefore be seen - for the purposes of duty of care - as an indicator of vulnerability: the plaintiff is specially vulnerable to the words and/or conduct of the defendant because he or she reasonably relied on the defendant. Reliance may also, of course, be relevant to causation. In terms of a duty of care, however, it is not reliance that is relevant, but its consequence, vulnerability. That is so, even though in certain situations "reasonable reliance" will be the appropriate test for determining whether the plaintiff was vulnerably exposed to harm from the defendant's acts or omissions.

To similar effect, Meagher JA (with whom Leeming JA agreed) said in Dansar Pty Ltd v Byron Shire Council (2014) 89 NSWLR 1 at [172] that known reliance may indicate vulnerability:

The presence of reliance is also an indication of “vulnerability” as that notion is understood: Perre at [10] (Gleeson CJ); Woolcock at [24] (Gleeson CJ, Gummow, Hayne and Heydon JJ). The vulnerability arises because of the recipient’s known reliance on the defendant as the source of advice or information.

The decision of the High Court in Caltex Oil (Australia) Pty Ltd v The Dredge “Willemstad” (1976) 136 CLR 529 would seem to show also that neither reliance nor assumption of responsibility is a necessary condition for the imposition of a common law duty of care. The majority in that case (Gibbs, Stephen and Mason JJ, in separate reasons) concluded that the defendants did owe a duty of care to the plaintiff to avoid causing it economic loss. There was no question in that case of the defendants’ having assumed responsibility to protect the plaintiff’s interests. Nor was there any question of the plaintiff’s having relied on the defendants to protect its economic interests.

Some tentative conclusions

There are very many circumstances in which negligent acts or omissions of one party will cause economic loss to another, but where the latter party may not recover the amount of that economic loss from the former. Take, for example, the case of a vehicle constructed to carry goods. Whilst the vehicle is being so employed to deliver goods to A for the purposes of A’s business, it breaks down, because it was defectively manufactured or negligently serviced. As a result, A does not get the goods, and loses the profit that it would have gained by deploying them in its business. The negligent manufacturer or repairer would not be held liable to A.
What, then, is the test that must be satisfied if liability is to be established? At the risk of over-simplifying what is a complex question, the authorities make it clear that the question, whether a defendant owes a plaintiff a duty of care to prevent the plaintiffs’ suffering economic loss, depends in the first instance on whether the plaintiff is relevantly “vulnerable” to the defendant’s acts and omissions. In this context, “vulnerable” does not mean only that the plaintiff is susceptible to harm as a result of the defendant’s acts or omissions. There is the added requirement that the plaintiff must be unable (perhaps, “reasonably” unable) to take steps to protect itself from that risk of harm.
However, to say that someone is in that sense “vulnerable” is the end, not the beginning, of the inquiry. Whether or not a person is relevantly vulnerable to the acts or omissions of another depends on a close examination of all relevant features of the relationship between them.
Identification of the relevant features will depend very much on the nature of the relationship: what it is that connects one person (the plaintiff) to the other (the defendant). Thus, in Evatt, the connecting factor was seen by the High Court to be the defendant’s quasi-contractual assumption of a responsibility to advise the plaintiff, in circumstances where the plaintiff had reason to believe that the defendant possessed the means of knowledge – or broadly, expertise – as to the subject-matter of the advice.
In Caltex Oil, the High Court saw the connecting factor as being the defendants’ knowledge that the pipeline in question, although not the property of the plaintiff, was used to carry the plaintiff’s oil from tankers to the plaintiff’s refinery, so that an obvious consequence of damage to the pipeline was interruption of the supply to the refinery.
In Bryan (although the High Court’s conclusion was expressed in terms of “proximity”, not in terms of vulnerability), the connecting factor was seen to be primarily the house that the defendant built and the plaintiff purchased (from the person for whom the defendant had built it).
In some cases, as Deane J recognised in Perre at [126], the dominant and dispositive connecting factor might be the defendant’s assumption of responsibility to the plaintiff, either of itself or coupled with the plaintiff’s known reliance on that assumption of responsibility.
A number of policy factors intrude upon the analysis. Those factors include the common law’s historical aversion to indeterminate liability; and the common law’s policy to encourage individual economic freedom. They include, also, recognition of the proposition that, when a defendant undertakes obligations pursuant to a contract, it would ordinarily be unjust to visit upon the defendant consequences in negligence, at the suit of a party with whom the defendant had no contractual relationship, greater than the consequences of that negligence as between the defendant and the party with whom it contracted.

The case against MHE

The pleaded case

The starting point, as ever, is to be found in the pleadings. The plaintiffs’ amended list statement (ALS) asserted that MHE owed them a common law duty. That case was articulated at [65] to [67] as follows:

[65]   The Third Defendant as a design engineer and as an inspecting engineer was under a common law duty to:
a.   asses the Site in the context of the Design Drawings;
b.   design the footings, slab and structural components of the Dwelling to be compliant with the relevant provisions of the Building Code of Australia (“the BCA”) and Australian Standard 2870-1996 (“AS 2870-1996”)
c.   inspect the as built footings, slab and structural components of the Dwelling to be complaint with Engineers Design Drawings (as revised), the relevant provisions of the Building Code of Australia (“the BCA”) and Australian Standard 2870-1996 (“AS 2870-1996”);
[66]   In the performance of its duties as the design engineer, and inspecting engineer, of residential building works, as defined under the HBA , the Third Defendant had in contemplation that in the event that the Works were not designed and carried out in a proper and workmanlike manner the Plaintiffs would be a member of a class of persons who would suffer loss and damage as a consequence.
[67]   As a consequence of matters pleaded in the paragraphs above, and in all the circumstances of the case, including without limitation:
a.   The fact that the Third Defendant in its capacity as the design engineer of residential building work would or ought to have been aware of the implication that upon completion of the Works, the Plaintiffs would suffer loss and damage as a result of defectively designed, constructed and/or inspected works which did not comply with the relevant laws and approvals;
b.   That there was reliance by the Plaintiffs on the Third Defendant;
c.   The fact that the Plaintiffs were in no position to protect themselves against the Third Defendants [sic] default;
d.   The fact that the Works were being supervised by an owner builder with limited experience in the construction of dwelling and structures generally; and
e.    The fact that, as between the parties, construction of the Dwelling as compliant with AS 2870-1996 was particularly within the Third Defendants control;
The Third Defendant owed the Plaintiffs a duty of care.

Presumably, the content of the duty of care alleged at [67] is to be found in [65].
The first and obvious point to make is that there is no possible basis for imposing a duty of care in the terms alleged at [65]. There was no express written contract between MHE and Mr Acres. Thus, the terms of MHE’s retainer or retainers (see at [5] above) were, at most, that it would perform the services required for the fee agreed, and would exercise reasonable professional care, skill and diligence in the performance of those services. I do not understand the basis on which it could be said that some wider and more detailed duty of care is imposed on MHE in favour of subsequent purchasers, with whom it had no contractual relationship.

Taken as a whole, the certifier’s evidence shows such wholesale dereliction of duty, such gross disparity with the exercise of reasonable care, that if the defences under ss 43(2) and 43A(3) of the Civil Liability Act were available as a matter of law, the facts are such that no reasonable certifier, in the position of the Council, could have acted as the certifier in this case did.
Accordingly, except as to the Dincel wall, I find the remaining substantial allegations of breach of duty proved.
It follows that there was no basis for the Council, acting as PCA, to certify, as it did in the final occupation certificate, that the extension was fit for occupation and use as a dwelling house. The evidence shows that it was plainly unfit for such occupation and use, because it was structurally defective, and because those structural defects presented and present a very real threat to personal safety and property.
That leaves the Dincel wall. The Council says that it did not form part of the approved development. That appears to be correct. There is no trace of the northern boundary retaining wall on the Actron drawings that were submitted to the Council and approved by it. The north elevation on sheet 5-11 refers to a “brick wing wall as selected”. There is no identification of that wall that would enable it to be correlated to the wall on the northern boundary that was the subject of MHE’s sketch SK01.
MHE’s structural drawings were not submitted to the Council with the development application. Nor were they referred to in the development approval. Indeed, despite many requests, they were not submitted to the Council for some months after work had commenced (a matter for which the certifier was, in my view rightly, criticised). Those structural drawings in any event did not form part of the approved plans.
As the Council submitted, the wall was not “part of the development subject of its obligations as PCA”. Nor was it nominated for a “critical stage inspection”.
There is no evidence that the certifier was ever called upon to inspect the wall. A fortiori, there is no evidence that he ever did inspect it, or that he certified it as in some way compliant.
In short, I find that the Council is not liable in respect of the allegations of breach insofar as they relate to the defective waterproofing the subject of [85(c)] of the ALS, or to the Dincel wall, the subject of [85(d)(xiii),(xiv)].
The other allegation of breach that is in issue is that made in [85(d)(xv)]. I do not regard this as a substantial matter.
That sub-paragraph alleges failure to require the production of certification that the works as executed complied with relevant provisions of the BCA and applicable Australian Standards. That general allegation appears to have got somewhat lost. It was not addressed in the parties’ submissions. It is not immediately apparent to me why the duty of care that, I have found, the Council did owe to the plaintiffs should have obliged it to require the production of such certificates. In any event, there is an obvious question as to whether Mr Acres was in a position to procure them, given that he had not engaged MHE to supervise the works, inspect each stage, and certify its compliance with the structural and other drawings.

Causation

As I have indicated above, the Council also raised a defence of causation. However, and again as I indicated above, the position is somewhat different, in the case of the Council. It was the PCA (and the consent authority). As the certifier conceded, it had the power to halt work on the project unless and until it was satisfied that a particular critical stage of the works had been completed in accordance with the approved drawings and the structural drawings. In a very real sense, if the Council, having carried out its inspection obligations as PCA in a competent and professional way, had detected non-compliance, it should have required the non-compliance to be rectified. More importantly, perhaps, it was then open to the Council to enforce its requirement, by the simple means of halting work until the non-compliance was rectified.
In those circumstances, I conclude, if the certifier had threatened Mr Acres with the issue of a stop-work notice, the overwhelming likelihood is that Mr Acres would have done what the Council properly required, to deflect the service of such a notice.
Accordingly, I find, there is no defence of causation available to the Council.

Breach of statutory duty

I have some difficulty in understanding this aspect of the plaintiffs’ case. It seems to me that the statutory duties alleged could really be no more than incidents of, or “duties” that give particular content to, the common law duty of care alleged against the Council.
In any event, I do not understand how the plaintiffs could recover any greater measure of damages for breach of statutory duty (if it were found that the Council owed and breached any of the statutory duties alleged). In those circumstances, pursuit of the abstract question – do the sections relied upon create duties enforceable in damages at the suit of the plaintiffs? – is largely of academic interest.
A decision on the existence and enforceability of those duties does not require any further facts to be found. The same may be said of the statutory defences on which the Council relies.
In short, I see no utility in dealing with the underlying questions of principle that are raised by this aspect of the plaintiffs’ case.

Damages

Right up until their case was opened at the commencement of the hearing, the plaintiffs had put their case for damages on the basis that it was necessary to demolish the whole house, and reconstruct it. Their case, based on the evidence of Mr Iskowicz, was that rectification work was not (at least economically) practicable, and that it would be more efficient, and no more expensive, to demolish and reconstruct. Mr Iskowicz produced costings for the alternatives that the whole of the house, or the extensions only, were demolished and reconstructed. The basis on which he said that demolition and reconstruction would be economically efficient, compared to rectification of the defects, was not exposed.
Mr Iskowicz’s evidence, as to the cost of demolition and reconstruction, was substantially supported by the evidence of another expert called for the plaintiffs: a builder, Mr Walter.
For some months prior to the hearing, it had been MHE’s case, to be advanced through the evidence of Mr Joannides, that rectification of the defects in situ was practicable in an engineering sense. MHE argued also, through the evidence of Mr Hall, that it was economically feasible.
When Messrs Stubbs and Joannides conferred with a view to producing their joint report, they agreed in substance on the defects and on the scope of works (at a level of some generality) that would be necessary to rectify those defects. In substance, that scope of works followed what Mr Joannides had said some months earlier, that had been costed by Mr Hall.
Faced by the prospect of being stuck with the costing of Mr Hall (whom the plaintiff Mr Cox described, in SMS messages to Mr Iskowicz, in offensive and unflattering terms), the plaintiffs pushed Mr Iskowicz to respond with his own costing of the scope of works. Mr Elliott objected to this. Ultimately, I took the course that it was better to let the experts in question, Messrs Hall and Iskowicz, confer, to see to what extent they could agree.
Assessment of their costings is made difficult for a number of reasons. One is that Mr Hall costed only the scope of works that was necessary to rectify the defects alleged against MHE (this is not a criticism), whereas Mr Iskowicz costed the scope of rectification of all the defects of which the plaintiffs complained. Thus, it is difficult to extract from their respective costings an “apples for apples” comparison.
Another difficulty is that, of necessity because of the haste with which it was produced, their joint report is not entirely easy to follow. In saying this, I express no criticism of the experts. On the contrary, they are to be thanked for attending to what must have been an unwelcome addition to their daily professional burdens, and doing so promptly and (so far as I can tell) comprehensively.
Messrs Iskowicz and Hall were questioned at some length, in a concurrent evidence session. A sustained attack was made on the credibility of Mr Iskowicz, suggesting in substance that he had become overly close to the plaintiffs; that he had lost objectivity; and that from time to time he had expressed opinions as an advocate and not as an impartial and independent expert. To my mind, there is some substance to these criticisms.
There were attacks made on Mr Hall also. It was suggested that he had sought to underplay the complexity and cost of the proposed work; and that he had underestimated the time required to support his costing; and that he had taken a cavalier attitude towards Workplace Health and Safety (WHS) legislation. Again, in my view, there is some substance to these criticisms.
My overall assessment of the experts is that each of them, to some extent, lacked objectivity. I thought that Mr Iskowicz sought to exaggerate the cost, extent and complexity of the works. For example, in relation to the rectification of waterproofing in a bathroom, he suggested that the bathroom fittings should be removed and scrapped, and replaced with new fittings (at the cost of the defendants). Again, his costing for the rectification of the EB3 defect included an allowance for a drainage pit. That is totally unwarranted.
Equally, I think, Mr Hall’s program for the works was unrealistically short. That must affect his costings, as the builder’s preliminaries of necessity reflect, among other things, the amount of time for which it is required to maintain men, machinery and equipment on site.
Again, I am satisfied that Mr Hall signally failed to recognise (or to accept) the WHS implications of the work. He therefore failed to factor into his estimate of time, and thus into his costing, the fact that, for a number of reasons (which, to his discredit, he was loath to accept), those WHS restrictions were significantly more onerous than he had suggested.
Another problem with Mr Hall’s evidence was his “fluctuation” in his choice of information on which he based his costings. On occasion, he referred to standard costing guides such as Cordells and Rawlinsons. On other occasions, he referred to his own experience (without indicating why it was that his experience was representative of what prices any other builder, acting reasonably, could get). Finally, in the course of cross-examination, he referred for the first time to yet another guide to costing, apparently issued by the Master Builders’ Association.
I am not satisfied that for the most part, the costings of either Mr Iskowicz or of Mr Hall can be relied upon without some qualification.
The cross-examination did not descend to tackling every disputed costs figure. Counsel took the course of choosing particular subjects, with a view to identifying the fundamental submissions that they proposed to put. The result is that I am in no position to undertake a detailed comparison of the costings, and to make a rational choice between them, item by item.
Looking at the common items between the two costings, I have the very strong impression that most of them are affected, adversely, by the relevant factors to which I have referred. There is one significant exception to this: the competing views as to the necessity for and cost of internal bracing. I turn to that at [424] and following below.
It would be possible to do as Mr Elliott submitted: namely, take Mr Hall’s figures, and increase them by some factor to represent what I thought was an appropriate correction for his undue conservatism. There is some theoretical merit in that approach, because Mr Hall is a practising builder, and has used real world experience at least in part. Mr Iskowicz, by comparison, has not worked as a builder for the last 20 years.
As against that, Mr Iskowicz’s rates are grounded in orthodox costings guides. And at least in respect of demolition and reconstruction, his opinion as to cost is not remarkably dissimilar to that expressed by Mr Walter, who as I have said does work as a builder. That gives me some confidence in the general accuracy of Mr Iskowicz’s acquaintance with current-day costs.
If I were to take the approach for which Mr Elliott argued, it would mean that there would be a revised costing of part only of the work. The revised costing would relate only to those particular items of work that Mr Hall had costed. That would then require me to make some adjustment to Mr Iskowicz’s costings for the balance of the work.
If I am to be guided in part by the costings of Mr Iskowicz, then, it seems to me, I should be guided by them entirely. To the extent that this carries with it the risk of injustice, it is of necessity a risk that affects all parties, although obviously enough in different ways.
There are alternatives. I could stand the matter over for detailed investigation of the costing. Or I could refer the matter out. However, having regard to what is, even on the evidence of Mr Iskowicz, the relatively small amount at stake, and having regard to the immense costs that no doubt the parties have incurred already, I think that that the appropriate course is to take what I acknowledge can be no more than a broad-brush approach to the figures produced by Mr Iskowicz, and reduce them by what seems to me, taking into account all the matters that were raised in the evidence and in submissions, an appropriate percentage to bring them back to what might regarded as some kind of reality.
I turn to the question of structural bracing.
The engineers agreed that, for the rectification work to be undertaken, it will be necessary for the extension to be structurally braced. Otherwise, they said, there would be a real risk of collapse, with the obvious risk of adverse consequences to life and property.
On the southern wall of the house, bracing could be achieved effectively and economically by the use of structural scaffolding. Scaffolding will be required in any event to enable the workers to have access to the upper levels of the extension. There is available scaffolding which also performs a bracing function. Although it is more expensive than ordinary scaffolding, its use would enable a significant saving to be made compared to the combined cost of ordinary scaffolding and separate bracing.
However, for the north and south walls (where scaffolding and bracing will also be required), there is a problem. Those walls are close to the boundary. It appeared to be common ground that if structural scaffolding were used, it would encroach on each side about 200mm over the boundary. That of course would be a trespass. The scaffolding would be liable to be removed at the suit of the adjoining owners.
Although Mr Elliott and Mr Bambagiotti submitted that it would be open to the plaintiffs to seek the agreement of their neighbours to that trespass, or to seek a court order permitting it, that does not strike me as a particularly satisfactory solution. There are obvious risks of delay and expense.
The engineers said that, as an alternative, internal bracing could be used. That would of itself add a substantial extra element of cost. But it would also contribute to an increase in the costs of rectification for a different reason. It appeared to be common ground that, for the internal bracing to be installed, it will be necessary to cut through the floors in various locations. There would then be additional costs for making good (including costs of retiling where the floors in question were tiled).
Mr Iskowicz costed internal bracing at some $67,752.00. Mr Hall costed it at some $56,356.00. In part, the difference in their costings represents their different approaches to the time that would be required. For the reasons I have given, I think that Mr Hall’s estimate of time is unrealistic. Although, it may be, the estimate by Mr Iskowicz was conservative, I am in no position to assess, either in time or in percentage terms, the extent of any conservatism. Accordingly, I conclude, the costs of internal bracing should be assessed in the sum calculated by Mr Iskowicz.
In case it is not clear from what I have said already, I conclude that the plaintiffs should be allowed the cost of the internal bracing. The alternatives suggested by Mr Hall, for which Mr Bambagiotti contended, are speculative and incapable of quantification. I do not see why the plaintiffs should be put to the uncertainty, expense and delay of the known unknowns for which Mr Elliott and Mr Bambagiotti contended, when there is a solution that has been costed and that will answer the problem.
I return to the remaining costs disputes. There are some objective factors that suggest that the discount to be applied to the costing prepared by Mr Iskowicz should be relatively modest. I have referred to two already. One is that, when dealing with the cost of demolition and reconstruction of the whole house, his figures were corroborated by those of Mr Walter. Another is the favourable view that I formed as to his costing of internal bracing.
A third matter that, to my mind, is relevant to the choice of the discount to be applied to Mr Iskowicz’s costings is that he factors in the additional costs of making good after removal of the internal bracing, and allows for making good in a more comprehensive and satisfactory way than the patchwork job for which Mr Hall contended would do. Mr Elliott sought to support this aspect of Mr Hall’s evidence. The likely result of adopting Mr Hall’s approach would be to leave the plaintiffs with an unsightly display of mis-matched or ill-matched tiling in various places.
Taking all those matters into consideration, and accepting that what follows is necessarily impressionistic, I conclude that to the extent other damages claims require to be assessed, they should be assessed at 80% of the figures costed by Mr Iskowicz. That applies as between all parties, where the assessment of damages is required, and it applies to all costs save those for internal bracing, as to which Mr Iskowicz’s figure should be used. The percentage figure is of necessity one that seeks to balance overall each of the disputed questions so as to produce a quantifiable outcome.
There is one more matter that needs to be considered, in connection with the cost of rectification of defects. I referred at [48] above to the demolition of the balconies. That is necessary because of their defective construction: the use of laminated timber beams rather than steel beams, exacerbated by the failure to protect the timber beams by waterproofing. However, the demolition of those balconies would be necessary in any event, so that the structural bracing/scaffolding that is necessary both to support the southern wall and to enable work to be carried out safely.
I do not think that this makes any difference. The balconies have to be demolished for two independent reasons. One is that they were constructed defectively, and present a danger to life. The other is that they need to be demolished to permit other aspects of the rectification works to be performed.
As between the plaintiffs and MHE, the first of those reasons would provide an independent and effective causal relationship between the alleged breach of duty and the particular item of loss (subject to the overall “want of causation” finding made at [324] above) because MHE failed to observe and give an appropriate direction in respect of the defective work. As between the plaintiffs and the Council, the second aspect provides that causal link.
To my mind, the full cost of demolition and reconstruction of the balconies should be allowed as against the Council. Further, if (contrary to my view) damages fell to be assessed against MHE, that cost should be allowed against MHE also. Their respective contributions to the outcome would fall to be considered and adjusted through the mechanism of apportionment of responsibility, to which I will turn in a moment.

I do not propose to undertake the mechanics of quantification myself, as the certain result will be arithmetical error. Accordingly, I shall stand the matter over, to enable the parties to work out the outcomes of these reasons.

Apportionment of responsibility

This arises as between Mr Acres, MHE and the Council, because Mr Acres has cross-claimed for relief against MHE and the Council. On the conclusion to which I have come, it does not arise directly as between the plaintiffs, MHE and the Council, because I have found that MHE is not liable to the plaintiffs.
However, it seems to me, the apportionment exercise that is necessary would apply also if, contrary to my view, it were to be concluded that MHE owed, and breached, a duty of care to the plaintiffs.
There is an immediate with including MHE in this exercise. I have concluded, for the reasons given at [313] to [324] above, that there was no causal link between any breach of duty on its part and the damages claimed for the relevant defects. Apportionment requires, among other things, an assessment of “causal potency” (see at [455] and following below). On my findings as to causation, any breach of duty on MHE’s part had no causal potency.
Thus, as to MHE, the present exercise is hypothetical. It requires an assumption of a counter-factual universe in which:

Mr Acres would have passed on to the contractors any direction given by MHE; and

the contractors would have done, promptly and properly, whatever those directions required of them.

The starting-point, as between Mr Acres and MHE is that the breaches of duty that MHE admitted conditionally vis à vis the plaintiffs must be breaches of the implied contractual duty to use reasonable care and skill, as between Mr Acres and MHE. I do not think that Mr Elliott contended otherwise.
Equally, as between Mr Acres and the Council, the breaches of duty that I have found vis à vis the plaintiffs must be breaches of an equivalent implied contractual duty as between Mr Acres and the Council. Again, I think, there was no submissions to the contrary.
Mr Acres was an owner-builder. He had no experience in building works of the kind in question. He had undertaken a TAFE course which did little more than inform him of relevant provisions of the HB Act.
Mr Acres contracted out almost all of the relevant work:

architectural design, to Actron;

structural design, to MHE;

responsibility for actually performing the building work, to licensed contractors; and.

some obligation to inspect the structural works, to MHE.

In addition, Mr Acres contracted with the Council, for it to inspect and certify the works as PCA.
There is no reason to think that Mr Acres had any evidence that the contractors he engaged were other than competent, and capable of understanding of what they had to do and of doing it with reasonable care and skill. Nor is there any reason to think that Mr Acres was, or should have been, aware of any defects in the way in which those contractors carried out their works.
Mr Acres said, and I accept, that he gave the contractors the drawings prepared by Actron, and the structural drawings (as from time to time revised) prepared by MHE. He said that he gave the contractors the development consent issued by Council, and other relevant material. He was not cross-examined to suggest the contrary.
Importantly, there was nothing in the certificates issued by MHE or in the certificates issued by the Council, as a result of their respective inspections, that would suggest to an owner/builder in Mr Acres’ position that there was any problem with the works that had been inspected.
As to MHE, and the breaches that have been found (being those conditionally admitted), there is simply no explanation as to how it was that the inspecting engineer failed to pick up the non-compliant work – that is to say, the work that was not consistent with the structural drawings. There was no evidence that a competent engineer, acting with reasonable professional care and skill, could reasonably not have observed the defects in question. On the contrary, as I have said, it was the evidence of Messrs Joannides and Stubbs that the inspecting engineer should have observed, noted and required rectification of the admitted defects.
The same may be said of the breaches that I have found as against the Council. There was no evidence that the certifier, acting reasonably and with proper skill, could nonetheless reasonably have failed to detect the various breaches. On the contrary, the certifier admitted that he should have observed the various items of non-compliant work that he missed.
As between MHE and the Council, to the extent that their negligent inspections covered the same work, and in the counter-factual universe within which this issue must be resolved, I would attribute the greater responsibility to MHE. After all, it was MHE who prepared the structural drawings, and it was by reference to those structural drawings that MHE was required to inspect, on the two occasions when it did so. One might think that, in those circumstances, it was peculiarly the responsibility of MHE to see that the work done was in conformity with its drawings.
However the question of apportionment of responsibility arises, it seems to me to require an assessment of relative culpability of each party, and of the relative importance of their acts and defaults in causing the damage suffered. I take that analysis from Podrebersek v Australian Iron and Steel Pty Ltd (1985) 59 ALJR 492 at 494:

The making of an apportionment as between a plaintiff and a defendant of their respective shares in the responsibility for the damage involves a comparison both of culpability, ie. of the degree of departure from the standard of care of the reasonable man (Pennington v Norris (1956) 96 CLR 10 at 16) and of the relative importance of the acts of the parties in causing the damage: Stapley v Gypsum Mines Ltd [1953] AC 663 at 682; Smith v McIntyre [1958] Tas SR 36 at 42–49 and Broadhurst v Millman[1976] VR 208 at 219, and cases there cited. It is the whole conduct of each negligent party in relation to the circumstances of the accident which must be subjected to comparative examination. The significance of the various elements involved in such an examination will vary from case to case; for example, the circumstances of some cases may be such that a comparison of the relative importance of the acts of the parties in causing the damage will be of little, if any, importance.

The liability that Mr Acres has does not rest on any actual negligence or fault on his part. It is a liability imposed on him by statute. It is a liability that arises simply because s 18C of the HB Act operates as between him and the plaintiffs. There is no real question of “culpability”. I do not think that he has been shown to have acted in any relevant way unreasonably.
By contrast, as it seems to me, both MHE and the Council departed in serious ways from the proper standard of care to be expected of them, in respect of the breaches that have been conditionally or otherwise found against them respectively.
Turning to the relative importance of the acts as contributing to the damage, or their causal potency, again, in the counter-factual universe but otherwise on the facts as I have found them, Mr Acres’ contribution must be regarded as minimal at most. True it is that the defective building work was carried out by contractors whom he engaged. True it is that he assumed the responsibility, as owner-builder, of supervising and co-ordinating those works. However, as I have pointed out, he was in no real position to judge of their sufficiency, or of the extent (if any) to which they complied with the structural drawings. That was a matter that he left, and in my view was entitled to leave, to others.
For the breaches that have been conditionally admitted by MHE, the causal potency of its defaults, as between it and Mr Acres, is significant. As I have said, I think that, for the breaches in question, its contributions to the perpetuation of those breaches should be regarded as more significant than those of the Council.
For those same breaches (i.e., those for which both MHE and the Council share, or might share, responsibility), the causal potency of the Council’s breaches of duty should be assessed as less than that of MHE. After all, the certifier knew that MHE had inspected the work, and had been given no reason to think that, in MHE’s view, the work was in any way defective.
The task of converting into hard figures impressionistic conclusions as to comparative contributions to loss is one that cannot be carried out with any degree of precision. It is misleading to turn those impressions into percentages. Percentage figures give an appearance of certainty, which is quite at odds with the underlying process of assessment. However, it is a task that must be performed.
As between Mr Acres, MHE and the Council, for breaches for which all have or might have responsibility (that is to say, the breaches conditionally admitted by MHE), I hold Mr Acres entitled to be indemnified:

by MHE: for 60% of the assessed cost of rectification; and

by the Council: for 40% of that cost.

That leaves the position as between Mr Acres and the Council, in respect of breaches for which both are in law responsible. The simple fact is that, had the certifier done his job, the items of non-compliant and defective work would have been detected. Had the certifier done his job, he would have required rectification of those items of work. Had the defects not been rectified, the certifier could and should have refused to issue the occupation certificate.
In those circumstances, I hold that Mr Acres is entitled to be indemnified in full for the assessed cost of rectification of the defects in question.
If the question of apportionment arose as between the plaintiffs, MHE and the Council, I would hold MHE liable for 60% of the “common” (as between it and the Council) loss, and the Council liable for 40%.

Conclusion and orders

For the reasons I have given, I am not prepared to attempt to convert my findings, as to defective work, the cost of rectification and relative proportions of contribution, into actual figures. That is a matter that the parties should do, based on the findings that I have made.
I accept that it will take some time for the parties to absorb what I have said, undertake draft calculations, and exchange and seek to agree upon draft orders that give effect to what I have said. Accordingly, I propose to do no more than stand the matter over for what I hope is a suitable period of time, to enable that to be done, and to reserve all questions of costs.
I make the following orders:

Stand proceedings over to 9:30am on 18 December 2015 before me for directions.

Direct the parties to negotiate in good faith and to use their best endeavours to agree on the form of orders required to give effect to these reasons (save as to costs).

Reserve liberty to apply on 3 days’ notice.

Reserve all questions of costs.

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Decision last updated: 11 December 2015

Medium Neutral Citation:	Chan v Acres [2015] NSWSC 1885
Hearing dates:	29/9/2015, 30/09/2015, 01/09/2015, 02/10/2015, 06/10/2015, 07/10/2015, 08/10/2015, 12/10/2015, 13/10/2015, 14/10/2015 and 15/10/2015
Date of orders:	11 December 2015
Decision date:	11 December 2015
Jurisdiction:	Equity
Before:	McDougall J
Decision:	Parties to bring in draft orders to give effect to reasons.
Catchwords:	NEGLIGENCE – building and construction – where plaintiffs purchased a house that had been defectively renovated by the vendor, the first defendant – second defendant no longer a party to proceedings – where vendor had engaged an engineer, the third defendant, to carry out inspections at particular times – where vendor had also engaged the local council, the fourth defendant, to act as Principal Certifying Authority STATUTE – case against vendor – statutory warranties set out in the Home Building Act 1989 (NSW) – warranties breached NEGLIGENCE – case against engineer – whether the engineer owed a duty of care at common law to use reasonable care to avert the risk that subsequent purchasers might suffer pure economic loss – relevant authorities – requirement that purchasers must have been vulnerable – analysis of vulnerability to proceed by reference to the salient features of the relationship – assumption of responsibility and known reliance as important factors – inability to protect one’s self from harm as another important factor – where no evidence of assumption of responsibility on the part of the engineer or known reliance on the part of the purchasers – where purchasers were, to some extent, able to protect themselves – no duty of care – further finding that had a duty been owed, breach would be made out, but not causation NEGLIGENCE – case against council – similar principles to case against engineer – further principles deriving from the statutory role of Principal Certifying Authorities under the Environmental Planning and Assessment Act 1979 (NSW) – assumption of responsibility and known reliance both shown – inability for purchasers to verify quality of construction by any other means – result that the purchasers were relevantly vulnerable to the conduct of the Council – reasonable foreseeability that loss could be suffered – consequence that duty of care was owed – breach of duty proved – causation also proved DAMAGES – divergence of opinion between expert witnesses – apportionment of responsibility – where vendor had no reason to think the various contractors he engaged were not competent – where his negligence derives from statute rather than through any fault of his own – where culpability of the council, by contrast, was serious – result that council should bear the cost
Legislation Cited:	Civil Liability Act 2002 (NSW) Environmental Planning and Assessment Act 1979 (NSW) Environmental Planning and Assessment Regulation 2000 (NSW) Home Building Act 1989 (NSW)
Cases Cited:	Astley v Austrust Ltd (1999) 197 CLR 1 Brookfield Multiplex Ltd v Owners – Strata Plan 61288 (2014) 88 ALJR 911 Bryan v Maloney (1995) 182 CLR 609 Caltex Refineries (Qld) Pty Ltd v Stavar (2009) 75 NSWLR 649 Caltex Oil (Australia) Pty Ltd v The Dredge “Willemstad” (1976) 136 CLR 529 Commercial Union Assurance Company of Australia Ltd v Ferrcom Pty Ltd (1991) 22 NSWLR 389 Dansar Pty Ltd v Byron Shire Council (2014) 89 NSWLR 1 Hawkins v Clayton (1988) 164 CLR 539 Moorabool Shire Council v Taitapanui (2006) 14 VR 55 Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd [2015] HCA 37 Owners Corporation Strata Plan 61288 v Brookfield Multiplex Ltd [2012] NSWSC 1219 Owners Corporation Strata Plan 72535 v Brookfield [2012] NSWSC 712 Perre v Apand Pty Ltd (1999) 198 CLR 180 Podrebersek v Australian Iron and Steel Pty Ltd (1985) 59 ALJR 492 The Mutual Life and Citizens’ Assurance Company Limited v Evatt (1968) 122 CLR 556 Western Districts Developments Pty Ltd v Baulkham Hills Shire Council (2009) 75 NSWLR 706 Woolcock Street Investments Pty Ltd v CDG Pty Ltd (2003) 216 CLR 515
Category:	Principal judgment
Parties:	Rebecca Chan (First Plaintiff) Warren Cox (Second Plaintiff) Robert Acres (First Defendant) Alpha Building Services Pty Ltd (Second Defendant) Mitchell Howes Civil & Structural Engineers Pty Ltd (Third Defendant) Ku-ring-gai Council (Fourth Defendant)
Representation:	Counsel: M Painter SC / M Walsh (Plaintiffs) R R Acres (First Defendant) (In person) M R Elliott (Third Defendant) P J Bambagiotti (Fourth Defendant) Solicitors: Snelgroves (Plaintiffs) R R Acres (First Defendant) (In person) Gilchrist Connell Legal (Third Defendant) Mills Oakley (Fourth Defendant)
File Number(s):	2012/48496